FILED: NEW YORK COUNTY CLERK 02/01/2023 04:33 PM
`NYSCEF DOC. NO. 1
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`INDEX NO. 650626/2023
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`RECEIVED NYSCEF: 02/01/2023
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`SUPREME COURT OF THE STATE OF NEW YORK
`NEW YORK COUNTY
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`Index No. __________
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`SUMMONS WITH NOTICE
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`JURY TRIAL DEMANDED
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`Plaintiff designates New York County as
`the place of trial.
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`Venue is proper in New York County
`under C.P.L.R. § 503.
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`Defendants.
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`1 of 9
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`A6 CAPITAL MANAGEMENT LP, A6
`MASTER FUND LP, ANGELO, GORDON &
`CO., L.P., AG CATALOOCHEE, L.P., AG
`CC FUNDING I, LTD., AG CC FUNDING II,
`LTD., AG CENTRE STREET
`PARTNERSHIP, L.P., AG CORPORATE
`CREDIT OPPORTUNITIES FUND, L.P., AG
`MM, L.P., AG SUPER FUND MASTER,
`L.P., CAPITAL FOUR US INC., CANYON
`BALANCED MASTER FUND, LTD.,
`CANYON DISTRESSED OPPORTUNITY
`MASTER FUND III, L.P., CANYON
`DISTRESSED TX (A) LLC, CANYON
`DISTRESSED TX (B) LLC, CANYON-
`EDOF (MASTER) L.P., CANYON ESG
`MASTER FUND, L.P., CANYON-GRF
`MASTER FUND II, L.P., CANYON IC
`CREDIT MASTER FUND L.P., CANYON
`NZ-DOF INVESTING, L.P., CANYON
`VALUE REALIZATION FUND, L.P., THE
`CANYON VALUE REALIZATION
`MASTER FUND, L.P., EP CANYON LTD.,
`MARINER ATLANTIC MULTI-STRATEGY
`MASTER FUND, LLC, MARINER GLEN
`OAKS MASTER FUND, LP, and ST.
`JAMES’S PLACE GLOBAL HIGH YIELD
`BOND UNIT TRUST,
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`JAMES M. CHIRICO, JR., ALAN
`MASAREK, KIERAN J. McGRATH,
`STEPHAN SCHOLL, KEVIN SPEED,
`SUSAN L. SPRADLEY, JOHN P.
`SULLIVAN, STANLEY J. SUTULA III,
`ROBERT THEIS, SCOTT D. VOGEL,
`WILLIAM D. WATKINS, and JACQUELINE
`E. YEANEY,
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`Plaintiffs,
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`v.
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`FILED: NEW YORK COUNTY CLERK 02/01/2023 04:33 PM
`NYSCEF DOC. NO. 1
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`INDEX NO. 650626/2023
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`RECEIVED NYSCEF: 02/01/2023
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`TO THE ABOVE-NAMED DEFENDANTS:
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`YOU ARE HEREBY SUMMONED to serve upon Plaintiffs’ attorneys a notice of
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`appearance within twenty (20) days after the service of this Summons, exclusive of the day of
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`service, or within thirty (30) days after service of this Summons is complete if it is not personally
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`delivered to you within the State of New York. If you fail to appear, judgment will be taken against
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`you by default for the relief demanded herein.
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`Defendants are current and former directors and officers of Avaya Holdings Corp. (the
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`“Company” or “Avaya”). Plaintiffs are current or former investors in debt issued by Avaya. This
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`Court has personal jurisdiction over Defendants under C.P.L.R. §§ 301 and 302 because, inter alia,
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`certain Defendants reside in the State of New York and because, as to all Defendants, Plaintiffs’
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`causes of action arise from Defendants’ conduct of Avaya’s business in this State and from their
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`tortious acts that took place in this State and caused foreseeable injury to Plaintiffs in this State.
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`Venue is proper under C.P.L.R. § 503 because certain Plaintiffs are located in this County and
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`because a substantial part of the events or omissions giving rise to Plaintiffs’ claims occurred in
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`this County, including, without limitation, certain Defendants’ transaction of business at Avaya’s
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`offices in this County, their meetings with Plaintiffs in this County, and the presence of the B3
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`Term Loan administrative and escrow agent in this County.
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`NOTICE
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`Plaintiffs bring this damages action to redress a massive fraud that Avaya’s directors and
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`officers perpetrated on investors in the Company’s debt. Plaintiffs are current and former investors
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`in the Company’s term loan and convertible notes. Through false statements about critical details
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`of Avaya’s finances and management, Defendants induced Plaintiffs to purchase or hold hundreds
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`FILED: NEW YORK COUNTY CLERK 02/01/2023 04:33 PM
`NYSCEF DOC. NO. 1
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`INDEX NO. 650626/2023
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`RECEIVED NYSCEF: 02/01/2023
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`of millions of dollars in those debt instruments. Plaintiffs relied on Defendants’ false statements
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`and have suffered more than $125 million in losses as a result.
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`All Plaintiffs held certain unsecured convertible notes issued by the Company in 2018 and
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`due 2023 (“the Convertible Notes”). Together, Plaintiffs’ holdings in the Convertible Notes
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`totaled over $100 million in face value. And certain Plaintiffs invested in (and later sold at a loss)
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`approximately $80 million in B3 Term Loans issued in July 2022.
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`In May 2022, Avaya sought to raise additional financing under the pretense of refinancing
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`the Convertible Notes. That same month, Avaya had released what seemed like rosy financial
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`results for the second fiscal quarter of 2022 (ending March 31).1 In discussing those results,
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`Avaya’s then-President and CEO, Defendant James M. Chirico, Jr., publicly touted the success of
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`the Company and its various product lines. Chirico claimed that the Company had enjoyed “record
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`growth” in its “transformational journey to a cloud and SaaS business model.” He also told
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`investors in an earnings call that “recurring revenue reached a record.” The business was
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`“obviously healthy and growing,” according to Chirico. Avaya was “focus[ed] on the long game,
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`investing in growth drivers and doing so profitably.” Avaya projected third fiscal quarter revenues
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`of “$685 million to $700 million” and adjusted EBITDA of “$140 million to $150 million.”
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`In late May and early June, Avaya repeated these claims to investors in both public
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`presentations and in private meetings arranged by Avaya’s investor relations department. Avaya
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`continued to report favorably on its liquidity, working capital, and financial projections. Members
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`of Avaya’s management team, including Defendants Kieran McGrath and John Sullivan, the
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`1 Avaya’s fiscal year begins on October 1 and ends on September 30 of each year. See Avaya
`Nov. 22, 2021 Form 10-K at 5.
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`FILED: NEW YORK COUNTY CLERK 02/01/2023 04:33 PM
`NYSCEF DOC. NO. 1
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`INDEX NO. 650626/2023
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`Company’s CFO and Treasurer, repeatedly assured investors that the Company’s finances and
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`operations were sound, and that financial projections were unchanged.
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`Defendants then contacted Plaintiffs and other investors in the Company’s existing debt
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`about making a new secured term loan to the Company (the “B3 Term Loan”). Avaya’s CFO and
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`Treasurer repeatedly represented that the Company’s finances, operations, and liquidity were
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`sound and that prospects were great. They repeatedly touted Avaya’s continued robust growth.
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`For example, during calls on June 2, 4, and 9, Defendants McGrath and Sullivan claimed to
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`investors, including certain Plaintiffs, that the Company was on track to meet the third-fiscal-
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`quarter guidance in Avaya’s recent earnings announcement. Avaya’s management also reiterated
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`that guidance to their financial advisors in the B3 Term Loan transaction, knowing that the
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`guidance would be repeated to investors. And to back up their claims, management also provided
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`detailed financial forecasts and guidance in a data room.
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`During negotiations, several Plaintiffs made clear that they would not invest in the B3 Term
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`Loan on the Company’s proposed terms unless the Company made a firm commitment to
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`repurchase their Convertible Notes at or near closing of the new financing. Defendant Sullivan
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`claimed to one Plaintiff that the securities laws prohibited the Company from repurchasing the
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`Convertible Notes before it released its third-fiscal-quarter financial results. Through their
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`advisors, Avaya’s management and the board promised multiple Plaintiffs that Avaya would
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`repurchase those notes as soon as practicable. In late June 2022, McGrath and Sullivan even
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`directed holders of the Convertible Notes, including two Plaintiffs, to speak with an agent
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`coordinating the planned repurchase.
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`All Plaintiffs continued to hold their Convertible Notes in reliance on the Company’s
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`statements about its finances and planned repurchases. And certain Plaintiffs – funds associated
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`FILED: NEW YORK COUNTY CLERK 02/01/2023 04:33 PM
`NYSCEF DOC. NO. 1
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`INDEX NO. 650626/2023
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`RECEIVED NYSCEF: 02/01/2023
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`with Angelo Gordon, Canyon, and Mariner (the “B3 Plaintiffs”) – invested approximately $80
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`million of new money in the B3 Term Loan in reliance on Defendants’ statements. As part of pre-
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`closing due diligence for the B3 Term Loan and other securities transactions, Defendants
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`reaffirmed the financial guidance yet again to the B3 Plaintiffs and claimed that there were no
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`anticipated changes to management.
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`The B3 Term Loan deal closed on July 12, nearly two weeks after the end of Avaya’s third
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`fiscal quarter. Defendants’ fraud began to become apparent almost immediately afterwards. In a
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`July 14 SEC filing, Avaya disclosed it had used proceeds from the B3 Term Loan to repurchase
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`$129 million of other investors’ Convertible Notes. The Company provided no explanation for
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`why, contrary to Defendants’ representations that it was precluded from doing so, it was
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`repurchasing Convertible Notes before releasing its third quarter financial results, or why the
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`repurchase did not include Convertible Notes held by Plaintiffs. When pressed, McGrath and
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`Sullivan reassured Plaintiffs that the Company still planned to repurchase all the Convertible
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`Notes, and again encouraged one Plaintiff to speak with an agent coordinating the planned
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`repurchases.
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`Two weeks later, Avaya shocked the market with two disclosures that further revealed the
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`extent of Defendants’ fraud. First, in a July 28 press release, management announced that the
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`Company would miss its previous earnings forecasts for the third fiscal quarter ended June 30 by
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`more than 60%. While management had earlier predicted adjusted EBITDA for the quarter of
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`$140 to $150 million – and repeatedly reassured Plaintiffs that the Company was on track to meet
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`those predictions – the July 29 results revealed that adjusted EBITDA was, in fact, only between
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`$50 to 55 million. Incredibly, Defendants gave no explanation for this devastating downturn.
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`FILED: NEW YORK COUNTY CLERK 02/01/2023 04:33 PM
`NYSCEF DOC. NO. 1
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`INDEX NO. 650626/2023
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`RECEIVED NYSCEF: 02/01/2023
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`Market observers called the revisions “dramatic,” noting that Avaya had suddenly
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`transformed into a “deeply distressed company” that needed to “radically restructur[e] its balance
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`sheet.” According to one investor, Avaya “did not [just] miss guidance, it missed by an ocean.”
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`The financial results were especially shocking because Defendants had stood behind the guidance
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`just two weeks before, when the Company closed the B3 Term Loan transaction. An inaccurate
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`forecast in the middle of the fiscal quarter – when financial performance was uncertain – might
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`conceivably have been an honest mistake. But Defendants reaffirmed the guidance after the fiscal
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`quarter ended, when they knew that the Company would dramatically miss that guidance.
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`Second, Avaya disclosed in an SEC filing that it had just removed Defendant Chirico as
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`CEO and replaced him with an outsider, Defendant Alan Masarek. The Company gave no
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`explanation for this sudden change. But as Defendant Sullivan later admitted, Avaya had been
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`searching for a new CEO long before and during its marketing of the B3 Term Loan. The
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`Company’s board of directors at the time – Defendants Chirico, Scholl, Spradley, Sutula, Theis,
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`Vogel, Watkins, and Yeaney (the “Director Defendants”) – were undoubtedly involved in that
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`search and aware of management’s efforts to obtain financing at the same time. Still, Defendants
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`never disclosed, or even hinted, to Plaintiffs or other investors to whom they were marketing
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`hundreds of millions of dollars in loans that the company would change CEOs. Defendants
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`intentionally hid this material information to induce the B3 Plaintiffs into investing and to induce
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`all Plaintiffs to continue to hold their Convertible Notes.
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`Predictably, the prices for both the B3 Term Loan debt and Convertible Notes plummeted
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`upon these disclosures. Seeking more information about the catastrophic financial results and
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`management change, certain Plaintiffs spoke with Company representatives between July 29 and
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`FILED: NEW YORK COUNTY CLERK 02/01/2023 04:33 PM
`NYSCEF DOC. NO. 1
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`INDEX NO. 650626/2023
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`RECEIVED NYSCEF: 02/01/2023
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`August 8. Defendant Sullivan tried to assuage investors’ concerns by claiming that, notwith-
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`standing the severe earnings downgrade, the Company had sufficient cash and still intended to
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`repurchase the Convertible Notes. Defendant McGrath and the new CEO, Defendant Masarek,
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`publicly repeated these claims. Plaintiffs continued to hold the Convertible Notes in reliance on
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`these representations.
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`But the bad news continued. On August 9, 2022, Avaya announced in an SEC filing that
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`there was “substantial doubt about the Company’s ability to continue as a going concern.” It also
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`disclosed that the board’s audit committee had started an internal investigation into the
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`dramatically revised financials for the previous quarter, as well as “matters related to a
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`whistleblower letter.” And in November 2022, the Company admitted that there were “material
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`weaknesses” in its financial reporting, and elaborated that in November 2021 – months before the
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`Company’s financing efforts – a whistleblower had warned the board of financial irregularities.
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`But the Director Defendants withheld those allegations from “members of the management and
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`. . . [Avaya’s] accounting firm.” Instead, the Director Defendants continued to approve rosy
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`financial projections and colluded with, or at the very least allowed, management to communicate
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`false forecasts to investors.
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`Defendants’ false statements and omissions went to the heart of Plaintiffs’ investments in
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`the B3 Term Loan and their decision to hold the Convertible Notes. Those false statements
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`covered such fundamental matters as the accuracy and trustworthiness of the Company’s financial
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`statements, whether the Company would repurchase its debt, and who would lead the Company as
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`CEO. The Company’s management made these statements with the knowledge of, and at the
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`direction of, the Director Defendants. And all Plaintiffs justifiably relied on Defendants’
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`misrepresentations. As a result, the B3 Plaintiffs lent a further $80 million to Avaya to protect
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`FILED: NEW YORK COUNTY CLERK 02/01/2023 04:33 PM
`NYSCEF DOC. NO. 1
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`INDEX NO. 650626/2023
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`RECEIVED NYSCEF: 02/01/2023
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`their existing investments, and all Plaintiffs bought or held more than $100 million in Convertible
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`Notes, convinced Avaya would fulfill Defendants’ promises to repurchase the notes. But once the
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`truth about the Company’s financial and management problems came out, those investments lost
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`significant value. Each Plaintiff has sold B3 Term Loans, Convertible Notes, or both at sharply
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`reduced prices. In addition, the Convertible Notes have been rendered substantially worthless,
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`given that their trading prices have collapsed to near zero and given that there is substantial doubt
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`about whether Avaya can continue as a going concern. Together, Plaintiffs have incurred over
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`$125 million in losses.
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`To remedy Defendants’ fraud, in this action Plaintiffs seek:
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` An award of compensatory, consequential, and/or punitive damages, in an amount to
`be determined at trial, for the losses caused by Defendants’ fraud, but in no event less
`than $125,000,000;
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` Pre- and post-judgment interest; and
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` Such other and further relief as is just and proper.
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`Upon your failure to appear, judgment will be taken against you by default for the relief
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`requested above and any other relief the Court may award.
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`FILED: NEW YORK COUNTY CLERK 02/01/2023 04:33 PM
`NYSCEF DOC. NO. 1
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`INDEX NO. 650626/2023
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`RECEIVED NYSCEF: 02/01/2023
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`Dated: February 1, 2023
` New York, New York
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`Respectfully submitted,
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` /s/ Steven F. Molo
`Steven F. Molo
`Justin M. Ellis
`Ryan Yeh
`MOLO LAMKEN LLP
`430 Park Avenue
`New York, New York 10022
`Tel.: (212) 607-8160
`Fax: (212) 607-8161
`smolo@mololamken.com
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`Matthew J. Fisher (pro hac vice forthcoming)
`MOLO LAMKEN LLP
`300 North LaSalle Street
`Chicago, Illinois 60654
`Tel.: (312) 450-6700
`Fax.: (312) 450-6701
`mfisher@mololamken.com
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`Attorneys for Plaintiffs
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